Allison(US:ALSN)2026-02-24 14:28Financial Performance - In 2025, total net sales decreased by 7% to $3,010 million compared to $3,225 million in 2024[209] - North America On-Highway net sales fell by 12% to $1,540 million in 2025, primarily due to lower demand for medium-duty and class 8 vocational trucks[209] - Defense end market net sales increased by 26% to $267 million in 2025, driven by higher demand for tracked vehicle applications[212] - Adjusted EBITDA for 2025 was $1,130 million, representing 37.5% of net sales, compared to 36.1% in 2024[221] - Gross profit for 2025 was $1,463 million, down 4% from $1,529 million in 2024, with gross profit as a percentage of net sales increasing by 120 basis points[226] - Operating income for 2025 was $880 million, representing 29% of net sales, compared to $992 million or 31% in 2024[223] - Net income for 2025 was $623 million, accounting for 21% of net sales, compared to $731 million or 23% in 2024[223] - Adjusted free cash flow for 2025 was $661 million, slightly up from $658 million in 2024[221] Cash Flow and Liquidity - The company generated $836 million in net cash provided by operating activities for the year ended December 31, 2025[221] - Total available cash and cash equivalents increased to $1,495 million in 2025 from $781 million in 2024[233] - Cash flows from operating activities for the year ended December 31, 2025, were $836 million, an increase of 4.4% from $801 million in 2024[250] - Cash used for investing activities increased to $184 million in 2025 from $147 million in 2024, primarily due to a $32 million rise in capital expenditures[251] - Financing activities provided $57 million in cash in 2025, a significant recovery from a cash usage of $427 million in 2024, driven by $500 million from the issuance of Senior Notes[252] - As of December 31, 2025, the company had $1,495 million in cash and cash equivalents and $745 million available under the Revolving Credit Facility[1] Expenses and Costs - The cost of sales for 2025 consisted of approximately 66% direct material costs, 26% overhead costs, and 8% direct labor costs[215] - Selling, general and administrative expenses increased by 13% to $380 million in 2025, driven by $64 million related to the Acquisition[227] - Engineering expenses decreased by 13% to $174 million in 2025, reflecting reduced spending on product initiatives[228] - Interest expense for 2025 was $92 million, an increase of 3% from $89 million in 2024[230] Debt and Financing - As of December 31, 2025, total indebtedness included $509 million from ATI's Term Loan and $1,000 million from 3.75% Senior Notes due January 2031[236] - The company authorized an additional $1,000 million for its stock repurchase program, totaling $5,000 million, with $328 million repurchased in 2025[246] - The company made $5 million and $104 million of principal payments on the Term Loan during the years ended December 31, 2025 and 2024, respectively[239] - On January 2, 2026, the company entered into an amendment to increase the Revolving Credit Facility commitments by $250 million to a total of $1,000 million[241] - The company had no amounts outstanding under the Revolving Credit Facility as of December 31, 2025[240] Impairment and Valuation - An impairment analysis in Q4 2025 resulted in an $8 million loss for tangible assets and a $21 million loss for intangible assets due to deteriorating market conditions[268] - The company performed a quantitative impairment analysis of goodwill in 2025, indicating no impairment as the fair value exceeded carrying value[262] - The company recorded $29 million in losses associated with the impairment of long-lived assets in 2025[229] - The company evaluates the carrying value of long-lived assets whenever events indicate that the carrying value may not be recoverable, with impairment recognized when future cash flows are less than carrying value[266] - The company utilizes a market approach for impairment analysis, reflecting the complexity of determining fair values[268] Future Outlook and Assumptions - The company believes that cash provided by operating activities and available liquidity will meet cash requirements for the next twelve months[248] - The company anticipates increased capital expenditures and cash income taxes in 2026 compared to 2025[245] - A 10% change in sales incentives could impact earnings by approximately $8 million, highlighting the sensitivity of revenue recognition estimates[254] - Assumptions and estimates regarding future cash flows and market conditions are complex and subjective, potentially impacting reported financial results[267] Other Considerations - Provisions for estimated warranty expenses are made at the time of product sale, with adjustments based on historical claims and repair costs[269] - The company assesses the need for a valuation allowance against deferred tax assets quarterly, considering various factors including recent losses and forecasts of future profitability[274] - A one percentage point decrease in the assumed discount rate would increase the defined benefit pension plans obligation by approximately $13 million and the OPEB obligation by approximately $6 million as of December 31, 2025[271][272] - The acquisition method is used for business combinations, with assets and liabilities recorded at estimated fair value at acquisition date, and excess purchase price recorded as goodwill[276] - The company reviews the useful lives of intangible assets periodically to determine if revisions are warranted based on events or circumstances[264] - Warranty costs may differ from estimates if actual claim rates are higher or lower than historical rates[269]